Weekly Country Focus: South Africa

South Africa has a two-tiered economy; one rivaling other developed countries and the other with only the most basic infrastructure. It therefore is a productive and industrialised economy that exhibits many characteristics associated with developing countries, including a division of labour between formal and informal sectors--and uneven distribution of wealth and income. The formal sector, based on manufacturing, services, mining, and agriculture, is well developed.
South Africa's transportation infrastructure is among the best in Africa, supporting both domestic and regional needs. The OR Tambo International Airport serves as a hub for flights to other Southern African and International countries. South Africa also has several major ports that make it a central point for most trade in the southern African region.

Currency
1 Rand = 100 cents

GDP ranking
24th (2005)

GDP
$576.4 billion (2006)

GDP growth
4.5% (2006 est.)

GDP per capita
$13,000 (2006 est.)

Forex reserves
$20.16 billion (February 2006)

Inflation
5% (2006)

Unemployment
25.5% (2006 est.)

Main industries
Mining (Platinum, Gold, Chromium, Diamonds), Automobile assembly, Metalworking, Machinery, Textile, Iron, Steel, Chemicals, Fertilizer and Foodstuffs


Inflation Targeting and GDP growth
In the February 2000 Budget Speech, the Minister of Finance, announced a policy of inflation targeting, helping to bring consumer inflation, which had been running in the double digits for over 20 years, under control. Inflation declined from 6.9% in 1998 to less than 6.0% in 2000. The target was set to keep the consumer price index (CPIX) — a key indicator of inflation — between 3% and 6% average per annum. Although initially successful, the rand's rapid depreciation in late 2001 led to greater inflationary pressure and the South African Reserve Bank missed the target during the course of 2002, with inflation coming in at an average of 9.3% for the year.

Since September 2003, however, the CPIX inflation rate has remained consistently within the target range. The average annual rates of CPIX since 2001 were: 2001 - 6.6%, 2002 - 9.3%, 2003 - 6.8%, 2004 - 4.3%, 2005 - 4.3%.

Success in keeping inflation down allowed the Reserve Bank to reduce the prime lending rate — that determines the interest rate. During 2003 alone interest rates were cut by 550 basis points (5.5%), while between 2002 and 2006 interest rates were cut by a total 650 basis points (6.5%).
The cut in interest rates saw consumer spending rise, the construction sector boom and the sale of new vehicles reach record levels. This in turn generated much needed growth in gross domestic product (GDP). Ironically enough, GDP growth started to gather steam just as the end of the GEAR period neared. Since 1999, quarterly GDP growth has been consistently positive and annual GDP growth consistently above 2%. The present business cycle upswing is the longest on record. Between 1996 and 2004, GDP growth averaged 3.1%, rising to 4.5% (based on 2005 market prices) in 2004. Growth for 2005 is expected to comfortably exceed 4%, some predicting growth rates greater than 5%. This contrasts sharply with the erratic growth rates of 4.3% in 1996, 2.6% in 1997, 0.5% in 1998 and 2.4% in 1999 under GEAR (baseline 2005).

Although economic growth has improved, the growth has been largely jobless, and quicker growth is still needed. The South African Government estimates that the economy must achieve growth at an average of 4.5% until 2010 and 6% thereafter to reach its goal of halving South Africa's high levels of unemployment, estimated at 26.5% (March 2005 - Stats SA), by 2014.
In an effort to boost economic growth further and spur job creation, the government has launched special investment corridors to promote development in specific regions and also is working to encourage small, medium, and micro enterprise development. In fact the policy has been condemned and opposed by the ANC (African National Congress) alliance partners, namely the Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP).

Some Useful links:
Johannesburg Stock Exchange, South Africa
The South African Futures Exchange(SAFEX), South Africa

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